What happens if I sell a covered call?

Asked 3 years ago

I went with an options trading strategy because I wanted to hold a long position and bought a covered call. However, I'm not sure I made the right decision and I'm wondering what will happen if I sell it? If I will lose money by selling it now, how do I work it to profit from it?

Covered call Selling covered calls Trgovanje opcijama Long position

Andia Rispah Igobwa

Monday, September 13, 2021

You'll receive a premium in return for giving up part of the future upside when you sell a covered call. Let's assume you buy XYZ stock for $50 a share and believe it will rise to $60 within one year. You're also prepared to offer at $55 within six months, accepting further upside while earning a short-term gain.
Investors can use selling covered calls to set a higher selling price for the stock than the current price. Even if the stock's price never rises that high, the covered call aids in achieving that goal by allowing investors to sell stock at a specific price regardless of what happens with the market.
But selling a covered call has its downside.
When a buyer purchases an option, they risk losing the right to buy the underlying stock if that stock price rises. The option seller may not sell the underlying stock without first purchasing back the call option. A large drop in share value (greater than or equal to the premium) will result in a total loss on the deal.